Report by ex-armed forces chiefs call for 50% rise in military spending to offset potential threats

The HMS Sheffield after it was hit by an Argentine Exocet missile during the Falklands conflict. Defence chiefs argued today that the islands would be vulnerable if cuts continue. Photograph: Martin Cleaver/PA

The UK needs to pour billions more into defence spending to counter future threats if the country is to avoid "expensive and possibly catastrophic mistakes" caused by under-funding, a report warns.

One of the report's authors said the Falkland Islands are a "plum ripe for the picking" should Argentina, with the support of its ally China, choose to contest British claims to sovereignty.

The study, by the United Kingdom National Defence Association (UKNDA), calls for the government to increase defence spending so that it accounts for 3% of GDP – currently it is at 2%.

The UK is already on "thin ice" militarily, and in a weak position to defend its interests around the globe, it says.

The report will hold weight because it has been compiled by five grandees of defence, including Air Chief Marshal Sir Michael Graydon, a former chief of the air staff, and General Sir Michael Rose, who was commander of UN forces in Bosnia in the early 1990s.

They call for an immediate reprioritisation within government to bolster defence, and set out potential threats from different regions.

The authors argue that the success of the Libya operation has to be put in context, and not used as a reason to justify the cuts announced in last year's Strategic Defence and Security Review (SDSR).

The review was muddled and incoherent, and the national security strategy had failed to predict the Arab Spring, they claim.

And while British forces had performed well in Libya, Vice Admiral Sir Jeremy Blackham, a former captain of the Ark Royal, said they had faced a "trivial enemy". Even then, the campaign had only been successful because the US had played a more significant role than is generally understood.

"The inconvenient truth is that [Libya] was only feasible [because] US forces first destroyed Libya air defences and then provided 75% of all air support missions," the report adds.

Blackburn said the US was extremely concerned about UK defence cuts and how they had diminished the country's capabilities.

"There is plenty of evidence in the US that they are disparaging of our efforts in a number of areas," said Blackburn. "The US is well aware that our abilities are much less than we would like to claim."

The defence of the Falkland Islands was cited as one area of vulnerability.

Air Commodore Andrew Lambert said the "British public is not aware of how thin the ice is … or how bad things could get."

The Falkland Islands were, he said, "ripe for the picking", and that Argentina's current peaceful approach to the sovereignty issue may not hold. "Intent can change overnight," he added.

The report argues that it is illogical to cut defence spending just because future threats are hard to predict.

Lambert said that unless the UK invested more on defence, historians might look back and say: "Oh my God, how did these people not appreciate how bad things are going to be."

North Korea, Pakistan, Afghanistan, Russia and China might all provide a threat in the future, the report says.

Liam Fox, the defence secretary, has stated repeatedly that defence has to share the burden of cuts forced upon the government by the global downturn, and blamed Labour for mismanaging the defence budget.

He has also argued that by 2020, the UK's armed forces will be leaner and better equipped to face any threats.

China, it says, has "considerable ambition" and has cornered the market in some essential minerals.

Allan Sykes, vice-president of the UKNDA, said Britain could easily spend more money on defence: "To pretend a further 1% is not affordable is absurd."

The report concludes: "It is now quite clear that the vital twin pillars of Britain's security for the past 50 years, the special relationship with the US and the continuation of an effective Nato, can no longer be guaranteed unless Britain increases its defence capabilities substantially and soon.

"The government must acknowledge these extreme threats to Britain's collectively provided security and address them forcefully as the highest priority."

Defence secretary Dr Liam Fox said: "For the first time in a decade we have brought the MoD's future plans and budget broadly into balance following tough decisions that had to be taken in the SDSR and a 1% increase in the equipment budget from 2015 to fill the MoD's multibillion pound black hole. This now allows around £150bn to be invested in new equipment over the next decade.

"RUSI concluded this week that claims our longer-term capability have been damaged are exaggerated and their independent report also made clear that the UK will remain one of the world's top military powers. As events in Libya clearly prove, our armed forces have the capability to project power around the world at short notice."